As widely expected, the Reserve Bank of India, on Tuesday, kept the indicative policy rate (repo) unchanged at 8 per cent while taking measures to provide longer term liquidity in the system.

Repo rate is the rate at which banks borrow funds from the central bank.

“On the basis of an assessment of the current and evolving macro-economic situation, we have decided today [Tuesday] to keep the policy repo rate unchanged at 8 per cent,” said RBI Governor Raghuram Rajan at a a press conference here to announce the first bi-monthly monetary policy for 2014-15.

Mr. Rajan said real GDP (gross domestic product) growth was projected to pick up from a little below 5 per cent in 2013-14 to a range of 5-6 per cent in 2014-15, albeit with downside risks to the central estimate of 5.5 per cent.

LONELY BATTLE
The Reserve Bank of India has decided to keep the repo rate unchanged at 8 per cent to provide longer term liquidity in the system. It must be remembered that Central Bank has to grapple with two exogenous factors to put the economy on the growth track. One the desire of the commercial banks to get loans from the monetary authority cannot be predicted. Two, the government policies and moves are as unpredictable as Indian monsoons. Hence the RBI is destined to fight a lonely and losing battle on achieving macroeconomic objectives. Nevertheless, as student of economics and politics, these developments help me to understand the subjects better. These also keep my teaching profession thrilling. Arm-chain orators!

from:
S.Ramakrishnasayee

Posted on: Apr 2, 2014 at 11:55 IST

Although inflation has reduced in recent months, it is largely due to reduction in prices of food commodities. But this trend might continue and inflation may pick up its previous rate in coming months. Even then holding the repo rate at 8 percent is well thought measure as any increase will aggravate the problem of liquidity. Due to US Fed tapering, we saw a decrease in capital inflow in recent months and the liquidity decreased in the market. To bring inflation under control, Urjit Patel Committee recommended repo rate to be higher than CPI (which is currently at 8.1%). But keeping in view the current crisis in liquidity, RBI's decision to keep repo rate of 8% is justified.